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EU Parliament approves post-2020 CO2 market reforms

Highlights


EP backs legislation with 535 votes to 104

Vote was in line with expectations

Legislation awaits final nod from EU Council

London β€” The EU Parliament on Tuesday voted in favor of legislation that seeks to overhaul the EU Emissions Trading System in the period 2021-2030.

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The parliament voted 535 votes in favor to 104 against, with 39 abstentions, on a compromise deal reached in November with the EU Council on the proposed legislation.

The vote cleared the way for final approval by the council, representing the 28 EU member state governments, in coming months.

The post-2020 legislation seeks to revamp the EU's carbon market with strengthened rules governing the annual cap on CO2 emissions after 2020, funding mechanisms for energy innovation and modernization, and more targeted allocation of free allowances for trade-exposed industries.



Importantly, the legislation also strengthens the system before 2020 by doubling the rate at which allowances will be removed from auctions to 24% of the cumulative surplus each year starting 2019.

The oversupply stood at 1.694 billion mt in 2016 and will be reduced each year under the Market Stability Reserve until it falls below 833 million mt.

EU Allowance futures contracts for delivery in December 2018 on the ICE Futures Europe exchange were quoted at Eur8.77/mt ($10.84/mt) at 1416 GMT, down 30 euro cent/mt from Monday's close.

EUA prices have rallied from as low as Eur4.40/mt last May as the proposed law cleared successive steps in the legislative process.

If carbon prices were to move higher in the next few years, as expected, that should provide a boost to the economics of cleaner energy generation and manufacturing technologies while increasing costs for older, less efficient technologies and more emissions-intensive fuels such as coal and lignite for power generation.

The overall aim of the post-2020 EU ETS legislation is to strike a balance between increased environmental ambition and adequate protection for industry, Member of the EU Parliament and lead lawmaker on the EU ETS reforms, Julie Girling, told a news conference after the vote.

The agreed post-2020 legislation created, for the first time, the possibility for cancellation of allowances under the system, Girling said.

That included both allowances held in the MSR as well as surplus allowance held by EU member state governments due to additional policies that reduce CO2 emissions, helping to maintain a more balanced system, she said.

Girling said the EU Council's upcoming formal sign-off of the legislation will be a formality since it adopted the agreement in November through its committee of permanent representatives, COREPER.

Non-profit group the International Emissions Trading Association said the vote equipped Europe's cap-and-trade system to do its job in the period to 2030.

"This new law will mark the beginning of a more ambitious era for the ETS," IETA President and CEO Dirk Forrister said in a statement.

"As the international community launches the 'Talanoa Dialogues' [facilitative work between governments] on strengthening climate action under the Paris Agreement, Europe is providing valuable leadership by enshrining in law a bolder role for the carbon market," he said.

Geneva-based IETA represents a broad cross-section of industries with an interest in emissions trading, including trading companies, banks, brokers, exchanges, energy companies, heavy industry, auditors and law firms.

--Frank Watson, frank.watson@spglobal.com
--Edited by Dan Lalor, daniel.lalor@spglobal.com